International accounts cover the closely related and integrated balance of payments and international investment position statistics. Diagram 30.1 presents the broad structure and relationship of these statistics.

Australia's balance of payments provides a statistical statement that systematically summarises the economic transactions between residents of Australia and residents of other countries. Residents, who may be people or businesses, need not be Australian nationals. Transactions cover the provision (changes in ownership) of goods, services and income, financial claims on and liabilities to the rest of the world, and transfers without anything provided in exchange (such as gifts).

Australia's international investment position is a balance sheet of the stock of foreign financial assets and liabilities of Australian residents. International investment statistics integrate the balance sheet positions at two points in time with information on increases and decreases in the levels of these assets and liabilities as a result of the changes due to transactions (investment flows, including reinvestment of earnings) as shown in the financial account of the balance of payments, together with the other changes that affect either the value of the stock (price, exchange rate) or the volume of the stock (other adjustments) of financial assets and liabilities.

30.1 RELATIONSHIP BETWEEN THE BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION STATEMENTS

Australia's international accounts statistics, which cover both the balance of payments and the international investment position, are compiled in accordance with international statistical standards as defined in the fifth edition of the International Monetary Fund's Balance of Payments Manual (BPM5). The concepts of residency, transactions, valuation and time of recording are common to the balance of payments and international investment position statistics.

The balance of payments accounts, which present systematically the economic transactions between Australia and the rest of the world, incorporate four types of economic transactions. The first involves the provision of real resources, that is, transactions in goods, services and income. The second involves the provision of financial resources, that is, financial assets and liabilities. The third covers those one-sided transactions of a current nature (described as current transfers) that are offsets to transactions in current real or financial resources undertaken without an exchange. Current resources are not associated with, nor do they finance, fixed assets. For example, famine relief, whether in cash or in kind, would have its offset in current transfers. The fourth type is capital transfers that offset transactions undertaken, without exchange, in fixed assets or in their financing. For example, the provision of foreign aid funds to build roads is classified as a capital transfer.

The first and third of these types of transactions make up the current account, while the second type makes up the financial account. The fourth type (capital transfers), together with a minor item for the acquisition and disposal of non-produced, non-financial assets (such as patents), make up the capital account.

The double entry accounting system is used for recording balance of payments transactions. Under this system, credit entries, which are shown with no arithmetic sign, are used to record the provision of real or financial resources. Credit entries are therefore required for exports of goods and services, and for income earned by residents (a return for providing the use of financial capital to non-residents, or for providing the labour of Australian residents). Credit entries are also required for providing financial resources to the rest of the world, either as new liabilities (such as issuing bonds), or through returning existing foreign assets (such as selling foreign equity securities to non-residents). Therefore, any credit entry in the financial account will reflect either an increase in Australia's foreign liabilities (more foreign debt or foreign ownership), or a decrease in Australia's foreign financial assets (such as a run-down in foreign exchange reserves).

Conversely, debit entries, which are identified by a minus sign (-), are used to record the provision by the rest of the world of real or financial resources to Australia, and are shown against imports of goods and services, income earned from Australia by non-residents, and financial transactions involving either an increase in foreign financial assets or a decrease in foreign liabilities.

Transactions in a double entry accounting system are reflected in pairs of equal credit and debit entries. For example, an export transaction for which payment is received through the banking system involves a credit entry for providing the good to a non-resident and a debit entry for being provided with foreign exchange assets as payment for the export. Any entries for which there is no quid pro quo are matched by special offsetting entries. Such offsetting entries are made in the categories 'current transfers' (when offsetting the provision of current resources such as food for famine relief) and 'capital transfers' (when offsetting the provision of capital resources such as development aid to build a new dam).

In principle, the net sum of all credit and debit entries is zero. In practice, some transactions are not measured accurately (errors), while others are not measured at all (omissions). Equality between the sums of the credit and debit entries is then brought about by the inclusion of a 'net errors and omissions' item which balances the accounts.

Transactions and other changes should be valued in the balance of payments at market prices. However, for practical reasons, transactions are generally valued in the statistics at transaction prices as this basis provides the closest practical approximation to the market price principle.

Transactions and other changes recorded in the balance of payments should be recorded at the time of change of ownership. For current account transactions, this occurs when ownership of goods changes, or services are provided. Investment income is recorded on a full accrual basis, that is, when it is earned. Reinvested earnings are calculated for the earnings of the period of account, using current replacement cost estimates of depreciation and excluding holding gains and losses. Current and capital transfers should be recorded when the goods, services, cash, etc., to which they are offsets, change ownership. Those transfers, such as taxes and fines, which are imposed by one party on another, should ideally be recorded at the time of occurrence of the underlying transactions or other flows or events that give rise to the liability to pay. For financial account transactions, the time of recording is at the change of ownership of the financial claims, which by convention is the time at which transactions are entered in the books of the transactors.

In practice, the nature of the available data sources is such that the time of recording of transactions will often differ from the time of change of ownership. Where practical, timing adjustments are made for transactions to ensure that they are recorded in the time period in which change of ownership occurs.

International investment position statistics are the balance sheet of the levels (stock) of Australia's foreign financial assets and liabilities. The investment position at the end of a specific period reflects the financial transactions (investment flows) and other changes (non-transaction changes) due to exchange rate effects, other price effects and changes in the volume of these assets and liabilities, all of which affect the level of assets and liabilities that occurred during the period.

While the international investment position statistics form an integral part of Australia's balance of payments (diagram 30.1), they are also useful in their own right, for example, in determining the impact of foreign investment policies and the level of Australia's foreign assets and liabilities, including foreign debt. They are also useful when analysing the behaviour of financial markets.

As with the balance of payments, market price is the principal method of valuation in international investment position statistics, and financial assets and liabilities are recognised on a change of ownership basis, that is, at the time when the foreign financial asset or liability is acquired, sold, repaid or otherwise disposed of. By convention, this is generally taken to be the time at which the event is recorded in the books.

CLASSIFICATIONS

In the following tables, estimates are presented of the current, capital and financial accounts of Australia's balance of payments. Current and capital account transactions are generally recorded gross. This means that, for each item in the current and capital accounts, the credit entries are recorded separately from the debit entries. For example, goods credits are shown separately from goods debits. For each item in the financial account, however, debit and credit transactions are combined to produce a single result for the item which may be either a net credit or a net debit. For example, in a given period, non-resident purchases of shares issued by companies in Australia (credit) are netted against sales of Australian shares to residents by non-residents (debit) and the net result is recorded in the financial account as either a net credit or a net debit.

The current account records transactions between Australian residents and non-residents in goods, services, income and current transfers. Goods are classified into five main components: general merchandise; goods for processing; goods procured in ports by carriers; repairs on goods; and non-monetary gold. Changes of ownership from residents to non-residents are recorded as credits (also referred to as exports), and changes from non-residents to residents are recorded as debits (also referred to as imports). Services, comprising 11 primary components, cover services provided by Australian residents to non-residents (credits) and by non-residents to residents (debits), together with transactions in a few types of goods (e.g. goods purchased by travellers). Income, comprising investment income (e.g. dividends and interest) and compensation of employees (e.g. wages), covers income earned by Australian residents from non-residents (credits) or earned by non-residents from residents (debits). Current transfers cover the offsetting entries required when resources are provided, without something of economic value being received in return. When non-residents provide something to Australian residents, offsetting credits are required; when residents provide resources to non-residents, offsetting debits are required. General government transfers (e.g. official foreign aid) are distinguished from transfers by other sectors.

The capital account covers capital transfers (such as migrants' funds), with general government distinguished from other sectors, and the acquisition/disposal of non-produced, non-financial assets.

The financial account shows transactions in foreign financial assets and liabilities. The primary split is by functional type of capital, (direct investment, portfolio investment, financial derivatives, other investment and reserve assets) further split into assets and liabilities where appropriate. Within the asset and liability categories, details are presented of instruments of investment and resident sectors (for other than direct investment), and in some cases the contractual maturity of the instruments.

The primary distinction used in international investment position statistics is between assets and liabilities. Assets primarily represent Australian investment abroad, and liabilities primarily represent foreign investment in Australia. The difference between the two represents the net international investment position (graph 30.8 and table 30.9). Australian investment abroad refers to the stock of foreign financial assets owned by Australian residents, after netting off any liabilities of Australian direct investors to their direct investment enterprises abroad. Conversely, foreign investment in Australia refers to the stock of financial assets in Australia owned by non-residents, after netting off any claims of Australian direct investment enterprises on their foreign direct investors. The first breakdown below this asset/liability presentation is by functional type of capital, with details of the instruments of investment (table 30.11), the resident sectors and contractual maturities involved.

While many types of instruments of investment can be identified, similar instruments are combined for analytical reasons and ease of reporting. Some of those instruments are:

Equity capital - which includes ordinary and participating preference shares, units in trusts and net equity in branches

Reinvestment of earnings of direct investors - which refers to income retained within the enterprise from after-tax profits that is attributable to direct investors

Debt securities - which include longer term, generally tradeable security instruments such as bonds and debentures, with a contractual maturity of more than one year after issue, together with money market instruments (e.g. bills, commercial finance paper, negotiable certificates of deposit) with a contractual maturity of one year or less

Trade credits - which cover the direct extension of credit by suppliers and buyers for goods and services, including advances for work in progress or to be undertaken

Loans - which cover the direct lending of funds either, without a security evidencing the transaction, or with non-negotiable documentation. They include financial leases

Deposits - which comprise both transferable and other deposits

Other assets and liabilities - which consist of miscellaneous accounts in respect of interest, dividends, etc.

STATISTICAL OVERVIEW

The balance on current account for 2004-05 was a deficit of $57.2 billion (b), an increase of $9.4b (20%) on the previous year (table 30.2). The net income deficit rose $7.5b (32%) with an increase in income debits of $11.2b (28%) partly offset by an increase in income credits of $3.7b (22%). The deficit on goods and services was $25.5b, an increase of $1.8b on the 2003-04 deficit of $23.8b. The net goods deficit rose by $0.1b and the net services deficit rose by $1.7b on the previous year.

The surplus on capital account increased by $0.1b (10%) to $1.2b in 2004-05.

The balance on financial account recorded a net inflow of $55.7b, up $9.8b (21%) on the previous year. Direct investment recorded a net inflow of $56.9b, a $73.0b turnaround on the net outflow of $16.0b in 2003-04. Contributing to the net inflow was a rise in Australian direct investment abroad of $83.0b to $55.4b and a fall of $10.1b in the net inflow of direct investment into Australia. The net inflow on portfolio investment decreased $74.2b, while other investment recorded a turnaround of $12.4b to record a net outflow of $1.8b in 2004-05. Reserve assets rose $3.0b, while financial derivatives recorded a turnaround of $1.6b to be $0.7b in 2004-05.

30.2 BALANCE OF PAYMENTS, Summary

2000-01

2001-02

2002-03

2003-04

2004-05

$m

$m

$m

$m

$m

Current account

-18,147

-21,057

-41,581

-47,780

-57,170

Goods and services

558

-1,373

-18,876

-23,777

-25,534

Credits

153,763

153,200

148,293

143,484

162,308

Debits

-153,205

-154,573

-167,169

-167,261

-187,842

Goods

-308

-992

-18,478

-23,522

-23,599

Credits

120,216

120,950

115,800

109,504

127,321

Debits

-120,524

-121,942

-134,278

-133,026

-150,920

Services

866

-381

-398

-255

-1,935

Credits

33,547

32,250

32,493

33,980

34,987

Debits

-32,681

-32,631

-32,891

-34,235

-36,922

Income

-18,737

-19,667

-22,491

-23,734

-31,216

Credits

16,278

15,586

15,499

16,786

20,518

Debits

-35,015

-35,253

-37,990

-40,520

-51,734

Current transfers

32

-17

-214

-269

-420

Credits

4,453

4,280

4,233

4,273

4,269

Debits

-4,421

-4,297

-4,447

-4,542

-4,689

Capital and financial account

17,388

20,165

41,285

47,016

56,850

Capital account

1,109

1,016

991

1,095

1,200

Capital transfers

1,182

1,186

1,103

1,167

1,203

Credits

2,442

2,543

2,404

2,571

2,749

Debits

-1,260

-1,357

-1,301

-1,404

-1,546

Net acquisition/disposal of non-produced, non-financial assets

-73

-170

-112

-72

-3

Financial account

16,279

19,149

40,294

45,921

55,650

Direct investment

7,910

1,336

13,626

-16,044

56,922

Abroad

-14,353

-21,775

-7,773

-27,674

55,355

In Australia

22,263

23,111

21,399

11,630

1,568

Portfolio investment

11,067

8,944

17,367

78,599

4,357

Financial derivatives

-538

204

-1,037

-910

701

Other investment

6,720

7,888

15,958

-10,597

1,792

Reserve assets

-8,880

777

-5,620

-5,127

-8,123

Net errors and omissions

759

892

296

764

320

Source: Balance of Payments and International Investment Position, Australia (5302.0).

Graph 30.3 shows the differing influences of the trade balance and the net income deficit on the balance on current account. The net income deficit rose from $12.2b in 1988-89 to $31.2b in 2004-05. The underlying level of net income drives the level and direction of the current account deficit, as Australia continues to service its external liabilities. The trade deficit moved from a deficit of $6.9b in 1988-89 to a deficit of $25.5b in 2004-05 but fluctuated quite significantly over this period.

Table 30.4 describes the annual levels of Australia's official reserve assets and both the end of year and period average exchange rates for the major currencies, special drawing rights, and the trade weighted index.

30.4 RESERVE ASSETS AND EXCHANGE RATES

2000-01

2001-02

2002-03

2003-04

2004-05

RESERVE ASSETS(a) ($m)

Total reserve assets

-37,951

-37,435

-40,760

-50,342

-56,170

Monetary gold

-1,367

-1,445

-1,329

-1,473

-1,468

Special drawing rights

-197

-216

-226

-256

-251

Reserve position in IMF

-2,412

-2,992

-3,185

-2,497

-1,734

Foreign exchange

-33,975

-32,782

-36,020

-46,117

-52,717

Currency and deposits

-11,340

-11,761

-10,254

-23,420

-32,464

Securities

-22,562

-21,137

-25,758

-22,695

-20,222

Financial derivatives (net)

-73

116

-8

-2

-31

EXCHANGE RATES - UNITS OF FOREIGN CURRENCY PER A$

End of period(a)

United States dollar

0.5075

0.5648

0.6674

0.6889

0.7637

United Kingdom pound sterling

0.3603

0.3700

0.4038

0.3815

0.4224

Euro

0.6002

0.5715

0.5840

0.5702

0.6315

Japanese yen

62.94

67.48

79.99

74.82

84.14

Special drawing rights

0.4076

0.4277

0.4761

0.4694

0.5234

Period average(b)

United States dollar

0.5379

0.5239

0.5847

0.7136

0.7529

United Kingdom pound sterling

0.3704

0.3632

0.3685

0.4102

0.4052

Euro

0.6023

0.5850

0.5577

0.5981

0.5918

Japanese yen

61.49

66.10

70.01

78.91

80.45

Special drawing rights

0.4177

0.4135

0.4313

0.4933

0.5024

TRADE-WEIGHTED INDEX OF VALUE OF THE A$(c)

End of period(a)

49.7

52.3

59.4

59.1

64.5

Period average(b)

50.3

50.7

53.5

61.5

62.7

(a) At 30 June.(b) Exchange rates and the trade-weighted index are provided by the Reserve Bank of Australia in respect of each trading day. Period averages are derived from these rates.(c) May 1970 = 100.0. The trade-weighted index is reweighted annually and on special occasions as required.

Source: Balance of Payments and International Investment Position, Australia (5302.0).

INTERNATIONAL TRADE IN GOODS AND SERVICES (BALANCE OF PAYMENTS BASIS)

Australia's international trade in goods and services for the six years to 2004-05 is shown in tables 30.5 (exports or credits) and 30.6 (imports or debits). The tables provide both current price and chain volume measures.

The components of goods shown in tables 30.5 and 30.6 are defined in terms of groupings of items in the United Nations Broad Economic Categories (BEC) for credits, and a version of the BEC for balance of payments purposes, modified for debits.

The current price value of a transaction may be expressed as the product of a price and quantity.

Chain volume measures of exports and imports remove the effects of price changes. They provide measures, in dollar values, which indicate changes in the actual volume of exports and imports.

There are, however, many transactions recorded in statistics of international trade in goods and services for which it is not possible to apply such an approach. In such cases it is necessary to make assumptions and approximations (e.g. revaluing by means of the price index which is considered to be most closely related to the commodity involved).

In current price terms, the balance on goods and services recorded a deficit of $25.5b in 2004-05, an increase of $1.8b (7%) on the $23.8b deficit recorded in 2003-04. Between these two years, goods and services credits rose $18.8b (13%) to $162.3b while debits rose $20.6b (12%) to $187.8b.

Over the same period, goods credits rose $17.8b (16%) to $127.3b, with rural goods up $1.1b and non-rural goods up $16.8b. Goods debits rose $17.9b (13%) to $150.9b. Consumption goods rose $4.2b, capital goods rose $3.8b, while intermediate and other goods rose $9.8b. Contributing to the rise in the intermediate and other goods were imports of fuels and lubricants, up $4.8b to $14.8b, and processed industrial supplies, up $2.0b to $14.0b.

More detailed information on exports and imports of goods, on a merchandise trade basis without adjustment to a balance of payments basis, and trade in services, is shown later in this chapter.

30.5 GOODS AND SERVICES CREDITS

2000-01

2001-02

2002-03

2003-04

2004-05

$m

$m

$m

$m

$m

AT CURRENT PRICES

Goods and services credits

153,763

153,200

148,293

143,484

162,308

Goods credits

120,216

120,950

115,800

109,504

127,321

General merchandise

112,806

113,331

107,108

101,530

119,472

Rural goods

29,164

30,085

25,484

24,560

25,668

Meat and meat preparations

5,796

6,246

5,655

5,758

6,944

Cereal grains and cereal preparations

5,937

6,481

4,487

5,094

5,157

Wool and sheepskins

3,897

3,687

3,545

2,778

2,838

Other rural

13,534

13,671

11,797

10,930

10,729

Non-rural goods

83,642

83,246

81,624

76,970

93,804

Metal ores and minerals

15,205

14,774

14,523

14,888

19,730

Coal, coke and briquettes

10,844

13,430

11,987

11,001

17,063

Other mineral fuels

13,464

10,940

11,049

8,766

11,121

Metals (excl. non-monetary gold)

10,146

9,650

8,711

7,759

8,675

Machinery

8,797

7,999

7,362

6,839

7,497

Transport equipment

5,041

5,686

6,273

5,155

4,942

Other manufactures

13,530

13,758

13,485

13,276

14,057

Other non-rural (incl. sugar)

6,615

7,009

8,234

9,286

10,719

Beverages

1,931

2,287

2,605

2,620

2,836

Sugar, sugar preparations and honey

1,330

1,610

1,363

1,123

n.p.

Other

3,354

3,112

4,266

5,543

n.p.

Other goods

7,410

7,619

8,692

7,974

7,849

Services credits

33,547

32,250

32,493

33,980

34,987

CHAIN VOLUME MEASURES(a)(b)

Goods and services credits

144,234

142,169

141,211

143,484

147,067

Goods credits

108,137

108,439

108,141

109,504

113,122

General merchandise

100,233

100,758

99,771

101,530

105,676

Rural goods

27,909

26,965

23,517

24,559

25,618

Meat and meat preparations

6,200

5,942

6,010

5,758

6,409

Cereal grains and cereal preparations

5,426

5,520

3,754

5,094

5,502

Wool and sheepskins

3,918

3,416

2,735

2,778

3,161

Other rural

12,517

12,195

11,203

10,930

10,548

Non-rural goods

72,469

73,835

76,261

76,971

80,056

Metal ores and minerals

12,973

13,469

14,238

14,887

16,135

Coal, coke and briquettes

9,730

9,970

10,438

11,001

11,649

Other mineral fuels

11,005

10,818

10,129

8,765

8,917

Metals (excl. non-monetary gold)

9,170

9,816

9,131

7,759

7,441

Machinery

7,388

6,847

6,680

6,838

7,637

Transport equipment

4,599

4,905

5,577

5,156

4,964

Other manufactures

12,061

12,234

12,540

13,276

13,507

Other non-rural (incl. sugar)

5,845

6,159

7,656

9,286

9,805

Beverages

1,691

1,995

2,394

2,619

n.p.

Sugar, sugar preparations and honey

933

1,058

1,123

1,123

n.p.

Other

3,154

2,997

4,098

5,542

2,698

Other goods

7,886

7,618

8,389

7,973

7,448

Services credits

36,097

33,730

33,070

33,980

33,945

(a) Reference year is 2003-04.(b) Chain volume measures for years other than 2003-04 and 2004-05 are not additive.

Source: Balance of Payments and International Investment Position, Australia (5302.0).

30.6 GOODS AND SERVICES DEBITS

2000-01

2001-02

2002-03

2003-04

2004-05

$m

$m

$m

$m

$m

AT CURRENT PRICES

Goods and services debits

-153,205

-154,573

-167,169

-167,261

-187,842

Goods debits

-120,524

-121,942

-134,278

-133,026

-150,920

General merchandise

-116,165

-116,802

-128,645

-127,900

-145,798

Consumption goods

-35,775

-37,422

-41,228

-42,916

-47,147

Food and beverages, mainly for consumption

-4,483

-4,687

-5,067

-5,167

-5,768

Household electrical items

-3,000

-3,166

-3,657

-3,793

-4,019

Non-industrial transport equipment

-9,627

-9,930

-11,302

-12,326

-13,005

Textiles, clothing and footwear

-4,811

-4,849

-5,237

-5,078

-5,813

Toys, books and leisure goods

-3,359

-3,494

-3,740

-3,593

-3,744

Consumption goods n.e.s.

-10,495

-11,296

-12,225

-12,959

-14,798

Capital goods

-25,739

-27,208

-31,554

-32,118

-35,961

Machinery and industrial equipment

-8,876

-9,502

-11,007

-11,064

-13,408

ADP equipment

-5,260

-5,055

-4,908

-5,138

-5,761

Telecommunications equipment

-4,379

-3,643

-3,619

-4,105

-4,567

Civil aircraft

-609

-1,513

-3,887

-3,061

-2,496

Industrial transport equipment n.e.s.

-2,940

-3,613

-3,881

-4,144

-4,978

Capital goods n.e.s.

-3,675

-3,882

-4,252

-4,606

-4,751

Intermediate and other merchandise goods

-54,651

-52,172

-55,863

-52,866

-62,690

Food and beverages, mainly for industry

-592

-577

-736

-625

-659

Primary industrial supplies n.e.s.

-1,133

-1,117

-1,220

-1,079

-1,052

Fuels and lubricants

-10,358

-8,823

-10,393

-9,917

-14,764

Parts for transport equipment

-7,089

-6,827

-7,258

-6,548

-7,012

Parts for ADP equipment

-2,255

-2,159

-2,011

-1,812

-1,788

Other parts for capital goods

-9,072

-8,216

-8,605

-8,553

-9,490

Organic and inorganic chemicals

-3,777

-3,447

-3,089

-3,048

-3,623

Paper and paperboard

-2,311

-2,225

-2,326

-2,242

-2,313

Textile yarn and fabrics

-1,863

-1,830

-1,839

-1,576

-1,453

Iron and steel

-1,437

-1,765

-1,960

-2,026

-3,010

Plastics

-2,193

-2,182

-2,478

-2,177

-2,429

Processed industrial supplies n.e.s.

-11,251

-11,441

-12,238

-12,029

-14,043

Other merchandise goods

-1,320

-1,563

-1,710

-1,234

-1,054

Other goods

-4,359

-5,140

-5,633

-5,126

-5,122

Services debits

-32,681

-32,631

-32,891

-34,235

-36,922

CHAIN VOLUME MEASURES(a)(b)

Goods and services debits

-129,406

-131,728

-148,756

-167,262

-186,927

Goods debits

-99,491

-102,731

-119,134

-133,027

-150,332

General merchandise

-95,250

-97,959

-113,902

-127,900

-145,443

Consumption goods

-31,895

-32,941

-37,797

-42,917

-48,365

Food and beverages, mainly for consumption

-4,284

-4,465

-4,760

-5,167

-5,724

Household electrical items

-2,365

-2,532

-3,201

-3,793

-4,441

Non-industrial transport equipment

-9,326

-9,201

-10,747

-12,326

-13,370

Textiles, clothing and footwear

-3,978

-3,844

-4,447

-5,079

-6,055

Toys, books and leisure goods

-2,705

-2,817

-3,258

-3,593

-3,840

Consumption goods n.e.s.

-9,315

-10,137

-11,388

-12,958

-14,936

Capital goods

-19,279

-21,075

-26,851

-32,119

-38,236

Machinery and industrial equipment

-7,498

-7,945

-9,850

-11,064

-13,488

ADP equipment

-2,457

-2,868

-3,567

-5,138

-6,725

Telecommunications equipment

-3,051

-2,596

-2,848

-4,105

-5,454

Civil aircraft

-532

-1,263

-3,445

-3,061

-2,481

Industrial transport equipment n.e.s.

-2,688

-3,273

-3,588

-4,144

-5,036

Capital goods n.e.s.

-3,125

-3,267

-3,798

-4,607

-5,051

Intermediate and other merchandise goods

-44,407

-44,190

-49,305

-52,866

-58,842

Food and beverages, mainly for industry

-640

-616

-647

-626

-649

Primary industrial supplies n.e.s.

-1,034

-1,034

-1,127

-1,080

-1,031

Fuels and lubricants

-8,767

-8,928

-9,450

-9,917

-11,241

Parts for transport equipment

-6,045

-5,681

-6,380

-6,548

-7,211

Parts for ADP equipment

-1,067

-1,238

-1,466

-1,812

-2,078

Other parts for capital goods

-6,895

-6,352

-7,213

-8,553

-9,835

Organic and inorganic chemicals

-3,200

-2,891

-2,920

-3,048

-3,417

Paper and paperboard

-1,941

-1,852

-2,076

-2,241

-2,498

Textile yarn and fabrics

-1,538

-1,519

-1,600

-1,576

-1,346

Iron and steel

-1,426

-1,783

-1,944

-2,025

-2,517

Plastics

-1,833

-1,795

-2,166

-2,177

-2,298

Processed industrial supplies n.e.s.

-9,239

-9,464

-10,917

-12,029

-13,669

Other merchandise goods

-1,069

-1,273

-1,495

-1,234

-1,053

Other goods

-4,235

-4,838

-5,263

-5,126

-4,890

Services debits

-29,915

-28,997

-29,622

-34,235

-36,595

(a) Reference year for chain volume measures is 2003-04.(b) Chain volume measures for years other than 2003-04 and 2004-05 are not additive.

Source: Balance of Payments and International Investment Position, Australia (5302.0).

Table 30.7 presents various price indexes for Australia's trade in goods and services. The implicit price deflators (IPDs) are derived by dividing the current price measures by the corresponding chain volume measures. These IPDs reflect not only price change, but compositional effects from year to year.

Unlike IPDs, chain price indexes measure only the impact of a price change. The chain Laspeyres price index for goods and services credits rose 10.7% in 2004-05 to 110.7. The chain Laspeyres price index for goods and services debits rose 0.7% to 100.7.

Australia's terms of trade (derived by dividing the IPD for credits by the IPD for debits) rose by 9.8% in 2004-05, resulting from a 10.4% rise in the IPD for goods and services credits and a 0.5% rise in the IPD for goods and services debits (table 30.7).

30.7 IMPLICIT PRICE DEFLATORS, Price indexes and terms of trade(a)

2000-01

2001-02

2002-03

2003-04

2004-05

Implicit price deflators(b)

Goods and services credits

106.9

107.8

105.0

100.0

110.4

Goods credits

111.2

111.5

107.1

100.0

112.6

Services credits

92.9

95.6

98.3

100.0

103.1

Goods and services debits

118.6

117.5

112.4

100.0

100.5

Goods debits

121.1

118.7

112.7

100.0

100.4

Services debits

109.2

112.5

111.0

100.0

100.9

Chain Laspeyres price indexes

Goods and services credits

105.6

106.7

104.5

100.0

110.7

Goods credits

109.6

110.2

106.4

100.0

113.0

Services credits

92.8

95.5

98.2

100.0

103.2

Goods and services debits

117.3

116.5

112.0

100.0

100.7

Goods debits

119.7

117.6

112.2

100.0

100.7

Services debits

108.9

112.4

111.0

100.0

100.9

Terms of trade(c)

Goods and services

90.1

91.8

93.4

100.0

109.8

Goods

91.8

94.0

95.0

100.0

112.1

Services

85.1

85.0

88.5

100.0

102.2

(a) Reference year for price and terms of trade indexes is 2003-04.(b) Derived by dividing the estimates at current prices in tables 30.5 and 30.6 by the chain volume measures in those tables.(c) Derived by dividing the IPDs for credits by the IPDs for debits.

Source: Balance of Payments and International Investment Position, Australia (5302.0).

INTERNATIONAL INVESTMENT POSITION

Australia's net international investment position is the difference between the levels of Australia's foreign financial liabilities and the levels of its foreign financial assets. Historically, Australia has had a net liability position with the rest of the world.

Australia's net international investment position at 30 June 2005 was a net foreign financial liability of $516.8b. This was up $46.3b (9.8%) on the position a year earlier and resulted from net increases of $11.1b in the level of foreign equity and $35.3b in the level of foreign debt.

Graph 30.8 shows the components of Australia's international investment position between 30 June 1994 and 30 June 2005. It shows that the increase in net foreign liabilities primarily reflects increase in net foreign debt liabilities.

Table 30.9 provides a reconciliation between opening and closing levels for foreign financial assets, foreign financial liabilities and Australia's net international investment position. Increases or decreases in these assets and liabilities are due to financial transactions (investment flows), price changes, exchange rate changes and other adjustments.

30.9 INTERNATIONAL INVESTMENT POSITION

Changes in position reflecting

Position at
beginning
of period

Transactions

Price
changes

Exchange
rate
changes

Other
adjustments

Position at
end of
period

$m

$m

$m

$m

$m

$m

NET INTERNATIONAL INVESTMENT POSITION

Total

2002-03

365,181

40,296

7,122

15,161

367

428,127

2003-04

428,127

45,920

2,144

-6,550

851

470,491

2004-05

470,491

55,651

-12,643

3,968

-638

516,827

Equity

2002-03

41,034

-5,604

5,253

29,791

-195

70,279

2003-04

70,279

-5,889

11,721

150

-450

75,811

2004-05

75,811

2,048

-13,068

22,278

-207

86,863

Debt

2002-03

324,147

45,899

1,870

-14,631

562

357,848

2003-04

357,848

51,809

-9,577

-6,700

1,301

394,680

2004-05

394,680

53,601

426

-18,310

-432

429,964

FOREIGN ASSETS(a)

Total

2002-03

-518,514

-34,964

3,287

31,063

-789

-519,917

2003-04

-519,917

-48,580

-40,036

-15,204

362

-623,375

2004-05

-623,375

40,511

-53,848

14,612

285

-621,817

Equity

2002-03

-309,245

-24,518

9,306

29,791

-114

-294,777

2003-04

-294,777

-34,811

-28,389

150

-127

-357,955

2004-05

-357,955

42,996

-50,685

22,278

784

-342,584

Debt

2002-03

-209,269

-10,449

-6,020

1,273

-675

-225,140

2003-04

-225,140

-13,768

-11,647

-15,354

489

-265,420

2004-05

-265,420

-2,484

-3,163

-7,666

-500

-279,234

FOREIGN LIABILITIES(b)

Total

2002-03

883,695

75,261

3,836

-15,902

1,155

948,043

2003-04

948,043

94,500

42,181

8,653

488

1,093,866

2004-05

1,093,866

15,140

41,204

-10,644

-922

1,138,645

Equity

2002-03

350,279

18,913

-4,054

-

-81

365,056

2003-04

365,056

28,924

40,111

-

-324

433,766

2004-05

433,766

-40,945

37,617

-

-990

429,447

Debt

2002-03

533,416

56,346

7,891

-15,902

1,237

582,988

2003-04

582,988

65,576

2,070

8,653

811

660,100

2004-05

660,100

56,086

3,587

-10,644

68

709,198

(a) Assets include claims of Australian direct investment enterprises on direct investors abroad, which are classified as part of direct investment in Australia.(b) Liabilities include liabilities of Australian direct investors to direct investment enterprises abroad, which are classified as part of direct investment abroad.

Source: Balance of Payments and International Investment Position, Australia (5302.0).

FOREIGN DEBT

Foreign debt is a subset of the financial obligations that make up a country's international investment position. It includes all the non-equity components of the net international investment position, that is, all recorded assets and liabilities other than equity securities and direct investment equity capital, including reinvested earnings.

The level of borrowing and other non-equity liabilities of Australian residents at a particular date make up Australia's foreign debt liabilities. The level of Australian lending abroad and other non-equity assets at the same date are deducted from the level of borrowing to arrive at Australia's net foreign debt.

The level of net foreign debt at 30 June 2005 was $430.0b, up $35.3b (8.9%) on 30 June 2004. The increase during 2004-05 resulted from a $49.1b (7.4%) increase in foreign debt liabilities partly offset by an increase of $13.8b (5.2%) in foreign debt assets (table 30.10).

At 30 June 2005 the net foreign debt of the public sector (general government plus public financial and non-financial corporations) was $7.3b, which accounted for 1.7% of total net foreign debt. Net foreign debt levels of private financial corporations and private non-financial corporations were $334.7b (77.8% of total net foreign debt) and $87.9b (20.5%) respectively (table 30.10).

30.10 LEVELS OF FOREIGN DEBT - 30 June

2001

2002

2003

2004

2005

$m

$m

$m

$m

$m

Foreign debt assets(a)

-193,840

-209,269

-225,140

-265,420

-279,234

Public sector

-63,432

-56,049

-55,337

-66,394

-73,198

General government

-10,338

-10,869

-10,757

-10,119

-9,611

Financial corporations

-46,151

-42,832

-43,377

-55,681

-62,487

Central Bank

-37,040

-35,053

-37,641

-47,845

-54,436

Central borrowing authorities

-1,426

-998

-568

-548

-419

Other financial corporations

-7,685

-6,781

-5,168

-7,287

-7,632

Non-financial corporations

-6,943

-2,348

-1,203

-594

-1,100

Private sector

-130,408

-153,220

-169,803

-199,027

-206,035

Financial corporations

-99,504

-121,185

-133,366

-160,168

-168,685

Non-financial corporations

-30,904

-32,036

-36,437

-38,858

-37,351

Foreign debt liabilities(a)

496,307

533,416

582,988

660,100

709,198

Public sector

69,150

67,310

63,587

71,474

80,522

General government

23,995

25,040

24,016

29,163

32,233

Debt domiciled abroad

1,453

1,686

1,523

1,187

1,158

Debt domiciled in Australia

22,542

23,354

22,494

27,976

31,075

Financial corporations

32,649

28,926

27,319

31,064

35,607

Central bank

366

43

150

124

173

Debt domiciled abroad

317

-

-

-

-

Debt domiciled in Australia

49

43

150

124

173

Central borrowing authorities

27,622

24,906

23,955

27,428

32,725

Debt domiciled abroad

24,596

22,319

21,091

24,572

26,477

Debt domiciled in Australia

3,027

2,588

2,864

2,855

6,248

Other financial corporations

4,661

3,976

3,214

3,512

2,708

Debt domiciled abroad

4,492

3,976

3,214

3,428

2,669

Debt domiciled in Australia

169

-

-

84

40

Non-financial corporations

12,506

13,344

12,251

11,247

12,682

Debt domiciled abroad

12,012

12,806

11,816

10,416

11,321

Debt domiciled in Australia

494

538

436

831

1,361

Private sector

427,157

466,106

519,401

588,626

628,676

Financial corporations

328,001

365,419

408,215

470,780

503,386

Non-financial corporations

99,157

100,687

111,186

117,846

125,290

Net foreign debt

302,467

324,147

357,848

394,680

429,964

Public sector

5,718

11,261

8,249

5,080

7,323

General government

13,656

14,171

13,259

19,044

22,622

Financial corporations

-13,502

-13,906

-16,058

-24,617

-26,880

Central Bank

-36,674

-35,010

-37,491

-47,721

-54,263

Central borrowing authorities

26,196

23,908

23,387

26,880

32,306

Other financial corporations

-3,024

-2,805

-1,955

-3,775

-4,924

Non-financial corporations

5,563

10,996

11,048

10,653

11,582

Private sector

296,750

312,886

349,598

389,599

422,641

Financial corporations

228,497

244,234

274,849

310,612

334,701

Non-financial corporations

68,253

68,652

74,749

78,988

87,940

(a) Foreign debt levels between direct investors and direct investment enterprises are recorded on a gross basis for assets and liabilities.

Source: Balance of Payments and International Investment Position, Australia (5302.0).

LEVELS OF FOREIGN INVESTMENT IN AUSTRALIA AND AUSTRALIAN INVESTMENT ABROAD

In table 30.11, levels of investment are categorised by direction (Australian investment abroad and foreign investment in Australia), type of investment (direct, portfolio, financial derivatives, other and reserve assets) and instrument.

Direct investment is a category of international investment that reflects the objective of obtaining a lasting interest by a resident in one economy in an enterprise in another economy, and implies a significant degree of influence by the investor in the management of the enterprise. A foreign direct investment relationship is established when an investor, who is a resident in one economy, holds 10% or more of the ordinary shares or voting stock of an enterprise (direct investment enterprise) in another economy. The portfolio investment category covers investment in equity and debt securities other than direct investment, financial derivative assets, other investment assets and reserve assets.

The items 'Australian investment abroad' and 'Foreign investment in Australia' in table 30.11 do not equate with foreign assets and liabilities respectively in table 30.9. The difference is due to netting of assets and liabilities in regard to direct investment, both abroad and in Australia. Debt claims by direct investment enterprises on their direct investors, separately identified in table 30.11, are netted off in that table against liabilities to direct investors. These items are not netted off in table 30.9.

At 30 June 2005 Australian investment abroad totalled $590.4b, down $2.2b (0.4%) on the level a year earlier. This fall was the net effect of a $29.1b decrease in direct investment abroad, a $24.5b increase in portfolio investment assets, a $4.0b decrease in financial derivative assets, a $0.5b increase in other investment assets and a $5.8b increase in reserve assets. The item 'Australian investment abroad in portfolio investment assets; debt securities' includes investment by residents of Australia in Kangaroo bonds (see article Kangaroo bonds in this chapter).

Foreign investment in Australia totalled $1,107.2b at 30 June 2005, up $44.1b (4.2%) on June 2004. This rise was due to a $3.1b increase in direct investment in Australia, a $40.7b increase in portfolio investment liabilities, a $4.3b increase in financial derivative liabilities and a $3.9b decrease in other investment liabilities.

30.11 LEVELS OF AUSTRALIAN INVESTMENT ABROAD AND FOREIGN INVESTMENT IN AUSTRALIA - 30 June

Source: Balance of Payments and International Investment Position, Australia (5302.0).

Ratios

Table 30.12 and graph 30.13 show that the ratio of the current account deficit to gross domestic product (GDP) was 6.7% in 2004-05, anincrease on the previous year, and above the average for the past ten years (4.7%).

Graph 30.14 shows the ratio of Australia's net foreign liabilities (Australia's net international investment position) to GDP has risen for most years since 1994 and reached its highest level of 60.8% at 30 June 2005. The ratio of net foreign debt to GDP was 50.6% at 30 June 2005, an increase over the 48.5% recorded the previous year. The ratio of net foreign equity to GDP was 10.2% at 30 June 2005, up on the ratio at 30 June 2004 and below the average for the last ten years (11.2%).

Table 30.12 shows the net investment income payable on net foreign debt as a percentage of goods and services credits was 9.5% in 2004-05. The ratio of net investment income payable on equity to goods and services credits was 9.4% in 2004-05, up from 7.3% the previous year.

30.12 RATIOS

2000-01

2001-02

2002-03

2003-04

2004-05

%

%

%

%

%

To GDP

Current account

-2.7

-3.0

-5.5

-5.9

-6.7

Goods and services

0.1

-0.2

-2.5

-2.9

-3.0

Credits

23.0

21.5

19.6

17.6

19.1

Debits

-22.9

-21.7

-22.0

-20.6

-22.1

Income

-2.8

-2.8

-3.0

-2.9

-3.7

Net international investment position(a)

54.7

51.2

56.5

57.8

60.8

Net foreign equity

9.4

5.8

9.3

9.3

10.2

Net foreign debt

45.3

45.4

47.2

48.5

50.6

To goods and services credits

Net investment income

-12.1

-12.6

-14.9

-16.1

-18.8

Net foreign equity

-2.6

-3.7

-6.9

-7.3

-9.4

Net foreign debt

-9.5

-8.9

-8.0

-8.8

-9.5

(a) These ratios are derived by expressing net foreign liabilities at end of year as a percentage of GDP at current prices for that year.

Source: Australian National Accounts: National Income, Expenditure and Product (5206.0); Balance of Payments and International Investment Position, Australia (5302.0).

FOREIGN OWNERSHIP OF EQUITY IN AUSTRALIA

The total value of equity on issue by Australian enterprise groups at 30 June 2005 stood at $1,538b (table 30.15). Of this total, 63% related to shares or equivalent equity instruments issued by non-financial corporations. Banks accounted for a further 15% of total equity issued, and other financial enterprises, including life offices and superannuation funds (but excluding non-bank deposit taking institutions and the central bank), accounted for 19%. Lesser amounts were issued by non-bank deposittaking institutions (3% of the total) and the central bank (1%).

Of the total equity on issue by Australian enterprise groups at 30 June 2005, non-residents held equity valued at $429b (29%), while residents held $1,108b (71%).

Although the proportion of equity held by non-residents remained relatively stable, the total value of equity on issue increased by 28%, from $1,205b to $1,538b, over the period from 30 June 2001 to 30 June 2005.

Analysed by sector, the value of equity on issue by non-financial corporations rose 21% to $971b over the period 30 June 2001 to 30 June 2005, while the proportion held by non-residents decreased slightly from 33% to 32%.

The amount issued by banks increased by 27% between 30 June 2001 and 30 June 2005, while the proportion of non-resident holdings of the total equity issued by banks decreased from 27% to 25% over the same period.

The value of equity issued by life offices, superannuation funds and other financial enterprises increased by 54% over the period from 30 June 2001 to 30 June 2005, with foreign ownership of this equity falling from 19% to 17% over the same period.

(a) Equity includes units in trusts.(b) Includes private non-financial corporations, and Commonwealth, state and local public non-financial corporations.(c) These estimated market values are considered to be of poor quality. They should be used cautiously.(d) Includes life offices and superannuation funds, central borrowing authorities, and other financial enterprises.(e) Net asset values.(f) There is no foreign ownership in this component.

Source: Australian National Accounts: Financial Accounts (5232.0); Balance of Payments and International Investment Position, Australia (5302.0).

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